Insurance Insights
Does a Corporation Need Business Insurance?

By:  Virginia Kinneman
Kinneman Insurance

You may have heard that corporations protect you from business liability. But does that mean you don't need insurance? Not if you don't want to lose your business. A corporation may protect you from personal liability, but the corporation itself can still be sued. 

Why Do Lawyers Say a Corporation Can Protect You from Liability? 

A corporation protects you from personal liability for business debts. What this means is that if someone sues your corporation or if your corporation can't pay back a loan, the plaintiff or creditor can only take what's inside of the corporation. They can't take your house, your retirement savings, or any other personal property. 

Your corporation can still be sued, and you may still need to go to court to defend it. If your corporation loses, you may have to pay the judgment by using the savings in your business bank account, selling business assets, or giving up real property owned by the corporation. If there is nothing left or you don't have enough cash to continue operations, you may have to go out of business.

Can't You Just Make a New Corporation? 

It may be possible to close your original corporation and start over under a new name, but doing this isn't easy. The law is designed so that you repay your debts whenever possible. A judge may decide to pierce the corporate veil and say that your actions weren't really under the original corporation and enter a judgment against either you personally or your new business. If you try to transfer assets to a new corporation — anything from tools to intangible assets like goodwill — a judge may decide it's a continuation of the original business and enforce a judgment against its future income. In short, you shouldn't view operating under a corporation as a get-out-of-jail-free card. 

How Does Business Insurance Protect a Corporation? 
Business insurance works similarly to personal insurance, except it pays on behalf of the corporation instead of an individual. If someone is injured at your business or your employee covers property damage, your business insurance company will handle the resulting claim. Just like with personal insurance, you can, and probably want to, purchase different types of coverage such as commercial auto insurance, general liability insurance, property insurance, and workers' compensation coverage. This will keep any claims against your business from slowing your operations or even putting you out of business. 


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